What you need to know about bankruptcy
When it comes to dealing with serious debt problems, sometimes bankruptcy could be the best solution. If there’s simply no way you can afford to repay your unsecured debts in a reasonable amount of time, declaring yourself bankrupt may be the most realistic approach to working your way out of debt.
What is bankruptcy?
Bankruptcy is a legally binding insolvency solution that could help you to clear your debts. If you’re seriously struggling to repay your unsecured debts and you don’t think your financial situation will improve in the foreseeable future, bankruptcy may be the best approach for you.
However, bankruptcy will have a serious impact, and you should always consider other ways to tackle your debts first before making a decision. This site could help.
How does bankruptcy work?
There are two types of bankruptcy: a debtor’s petition (where someone tries to be made bankrupt) and a creditor’s petition (where a creditor tries to make them bankrupt).
You could apply for bankruptcy yourself by filing a petition at the County Court – and the district judge will then decide whether to grant the bankruptcy or not.
The up-front cost of applying for bankruptcy is currently £700 (£525 Official Receiver’s deposit, plus £175 court fees). However, if you’re unemployed or on a limited income, you may not have to pay the court fee when you apply.
A lender could petition for your bankruptcy if you owe them £750 or more.
What are the benefits of bankruptcy?
There are several benefits of bankruptcy to consider. For example, entering into bankruptcy could:
- Give you a date you’ll know you should be debt-free
- Write off your debts on successful completion (usually after 12 months)
- Protect you from any legal action from your lenders
- Give you a chance to make a new start with your finances once your bankruptcy is behind you.
What are the downsides of bankruptcy?
However, as with any debt solution, bankruptcy comes with some drawbacks too. For example:
- Any valuable assets that you own, potentially including your home, may be sold to help repay your lenders
- Bankruptcy comes with certain employment restrictions
- Your bankruptcy will be published in newspapers
- Being declared bankrupt will affect your credit rating for six years.